US Economy
US Fed vice-chairman warns future US/ global growth may remain subdued
By Michael Hennigan, Finfacts founder and editor
Aug 12, 2014 - 9:35 AM

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From slide presentationby Anders Borg, Swedish finance minister, Stockholm, Aug 11, 2014

The Federal Reserve’s vice-chairman on Monday warned that future US and global growth may remain subdued.  

Stanley Fischer pointed to a US labour force participation rate that at below 63% is at its lowest since 1978 when many women were joining the workforce and a weak US housing recovery as explanations for disappointing global growth, saying this could be a long-term phenomenon.

The Fed vice chairman said in a speech in Stockholm at the "The Great Recession--Moving Ahead" conference, which was sponsored by the Swedish finance ministry, that although the weak recovery might simply be fallout from the financial crisis and the recession, “it is also possible that the underperformance reflects a more structural, longer-term shift in the global economy.”

He said: "With few exceptions, growth in the advanced economies has underperformed expectations of growth as economies exited from recession. Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back. Indeed, research done by my colleagues at the Federal Reserve comparing previous cases of severe recessions suggests that, even conditional on the depth and duration of the Great Recession and its association with a banking and financial crisis, the recoveries in the advanced economies have been well below average.

In the emerging market economies, the initial recovery was more in line with historical experience, but recently the pace of growth has been disappointing in those economies as well. This slowing is broad based--with performance in Emerging Asia, importantly China, stepping down sharply from the post-crisis surge, to rates significantly below the average pace in the decade before the crisis. A similar step-down has been seen recently for other regions including Latin America."

Fischer said it was difficult to determine how much of the weakness was because of cyclical factors and how much represented a more fundamental, structural change in advanced economies.

However he warned of three pronounced headwinds that have held back growth in the United States: a still anemic housing market, cuts in federal government spending and weaker global growth that cut demand for exports.

Both the Eurozone and Japan's economy remain fragile.


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